08/10/2024 - 07:20 UTCThe dollar took a breather on Monday, following five consecutive daily gains that took it to seven-week highs. The dollar index (USDX) was down slightly by 0.03% as investors anticipate further catalysts in the upcoming inflation report due on Thursday as well as the minutes of the Fed's September meeting scheduled to be released on Wednesday.
The market is currently expecting a 25-basis point rate cut by the Federal Reserve in November, with a 85.8% probability according to the CME's FedWatch tool. Chances for interest rates to remain unchanged currently stand at 14.2%.
Major U.S. indexes tumbled on Monday, led by a 1% decline in the US 500. According to reports, part of the move was attributed to a rise in Treasury yields, exceeding 4% for the first time since August. This followed a surprisingly strong jobs report that dampened hopes for another significant rate cut by the Fed in November that also tends to add pressure on prices. While Fed President Kashkari welcomed the strong job market data, the minutes might reveal the internal debate regarding the pace of future rate cuts.
The third-quarter earnings reporting season is poised to commence this week, featuring financial statements from prominent banking institutions such as JPMorgan Chase, Wells Fargo, and Bank of New York Mellon. Investors are also bracing for market swings upon the release of the September Consumer Price Index (CPI) inflation data, as it will likely play a significant role in shaping the Federal Reserve's future interest rate decisions.
In corporate news, Alphabet Inc Class A fell more than 2% after a U.S. judge ruled against the company in an antitrust lawsuit brought by Epic Games. The judge ordered Google to offer alternatives to its Google Play store for downloading apps on Android phones. Google has vowed to appeal the decision. Pfizer stock rose 2.2% after Bloomberg reported that activist investor Starboard Value has taken a stake of about $1 billion in the drugs giant. Starboard is seeking to spur a turnaround of the struggling company.
Later today, some price action could be seen upon the release of Germany’s industrial production data, the U.S. trade balance and several speeches from key FOMC members such as Kugler, Bostic and Collins
The EUR/USD remained subdued just below the 1.1000 mark on Monday, failing to stage a significant rebound after slipping beneath this key psychological level last week.
Despite a modest miss in European retail sales figures, the pair did not extend its decline, reflecting a market in limbo. Traders are focused on rate cut expectations, with upbeat US labor data dimming hopes for any imminent policy easing.
The next notable event will be Wednesday's release of the Federal Open Market Committee (FOMC) meeting minutes, which is likely to attract attention, though it's expected to provide little new information. The major highlight from the US side will come on Thursday with the latest Consumer Price Index (CPI) inflation data.
Gold prices edged lower on Monday as the precious metal remains under pressure from rising US Treasury bond yields, though the ongoing conflict in the Middle East has prevented further declines.
Market sentiment has worsened due to the escalating war in the Middle East. Israel’s continued ground operations in Lebanon, coupled with rocket fire from Hamas toward Tel Aviv, have dampened hopes for a ceasefire. The conflict has expanded, with other groups, such as the Houthis, attacking ships in the Red Sea.
Meanwhile, the September Nonfarm Payrolls report boosted US Treasury yields. Looking ahead, next week’s US economic calendar features key releases, including inflation data, the Fed’s latest meeting minutes, jobless claims, and the University of Michigan Consumer Sentiment report.
Oil prices climbed more than 3% on Monday as the escalating risk of a broader Middle East conflict spurred investors to reverse record bearish positions accumulated last month.
On Monday, Iran-backed Hezbollah fired rockets at Israel's third-largest city, Haifa, while Israel appeared set to intensify ground operations in southern Lebanon on the first anniversary of the Gaza war, which has fueled the broader regional conflict.
OPEC and its allies, known collectively as OPEC+, are set to begin increasing production in December, following years of cuts aimed at propping up prices due to sluggish global demand.
U.S. main indexes slipped on Monday, pressured by rising Treasury yields following last week's stronger-than-expected jobs report, which diminished hopes for a significant Federal Reserve rate cut in November.
Several Federal Reserve officials are scheduled to speak this week, potentially offering more insights into monetary policy following the strong labor data. The minutes from the Fed’s September meeting, due for release on Wednesday, may provide further insight into the trajectory of rate cuts.
In addition, the third-quarter earnings season kicks off this week, with major banks like JPMorgan Chase, Wells Fargo, and Bank of New York Mellon reporting their results on Friday.
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